The US Phillips Curve and inflation expectations: A State Space Markov-Switching explanatory model
AbstractThis paper proposes a new empirical representation of US inflation expectations in a Stace-Space Markov-Switching framework in order to identify the expectations regimes which are associated with short and long term Phillips curves. We explicitly identify the dynamic of inflation expectation errors using the expectations augmented Markov-switching Phillips curve as a measurement equation. In this paper we consider expected inflation as an underlying component of observed inflation. We thus use the same type of specification (occasionally integrated) to describe its dynamic. We have found that dynamics of inflation expectation errors change across regimes. For the last 20 years we show the Phillips curve is vertical and associated with rational inflation expectations. Whereas for the period of economic instability (1973-1983) a negative Phillips curve is associated with adaptive expectations
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Bibliographic InfoPaper provided by Society for Computational Economics in its series Computing in Economics and Finance 2004 with number 133.
Date of creation: 11 Aug 2004
Date of revision:
State-Space Markov-Switching model; Inflation expectation errors; Phillips curve; occasionally integrated process;
Other versions of this item:
- Nicolas Million & Guillaume Guerrero, 2004. "The US Phillips Curve and inflation expectations: A State Space Markov-Switching explanatory model," Econometric Society 2004 Far Eastern Meetings 542, Econometric Society.
- E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
- C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
- C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
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